BES plans opens new fund to music groups

 

THE proposed extension of the Business Expansion Scheme (BES) to certain parts of the music industry will be welcomed by up and coming, often cash starved bands and artists as a source of funding that may propel them into the big time.

The proposal, like the extension of Section 35 film relief, reflects a belief on the part of the Government in the export potential and, in turn, the economic benefit to the country from developing the audio and visual arts.

The export potential for Irish music is clear from the enormous international success of Irish artists like U2, The Cranberries and Enya. Given our relatively small population, international recognition, is particularly vital as it is difficult for Irish bands to survive on the local market alone.

However, international recognition involves spending large amounts of money on equipment, rehearsal, publicity and advertising and live performance overseas. Initial investment of large six figure sums can be required without any guarantee of recoupment.

As would be the case in any other business, the level of investment that record companies are prepared to make in any artist is determined by standard risk/reward type analysis.

The amount that record companies are prepared to invest in new talent inevitably reflects the higher level of risk associated with unknown artists. The extension of the Business Expansion Scheme to the music industry will hopefully go some way towards bridging this risk/reward gap.

Traditionally, the physical production of music CDs, videos, cassettes and records has been regarded as a manufacturing activity qualifying for the 10 per cent rate of tax and BES funding. These reliefs principally benefit recording studios and duplicating facilities rather than artists and promoters.

With effect from April 6th (and notably not for investments made in the current tax year) the Business Expansion Scheme is to be extended to investments in the production, marketing and promotion of "new artists" recordings and associated videos.

The precise legislation extending the BES to this sector has yet to be drawn up. It is clear, however, that the relief will be subject to a detailed certification system which appears likely to fall under the auspices of the Department of Arts, Culture and the Gaeltacht.

The availability of tax relief will encourage individuals within the industry and on its outskirts to invest in the promotion of emerging talent. However, despite the tax relief, raising funding of this kind from outside the environs of the music sector is likely to require additional commercial underpinning of the investment to make it work. Support from the major record labels may be necessary.

The certification requirement should ensure that the extension of the Business Expansion Scheme to the music sector is done in a focused manner. Certification guidelines are not yet available, but it would not be unreasonable to expect that criteria along the lines required for Section 35 film certification may be introduced.

As such, the criteria are likely to focus on the use to which the BES monies are put in promoting the new artist and, in particular, require minimum levels of expenditure on Irish services and facilities.

Larger projects (i.e. where BES funding of more than £250,000 is to be raised) are likely to have to adhere to the general guidelines which have recently been introduced for certification under the Business Expansion Scheme. These require the monies raised to have the potential to create "a reasonable level" of additional sustainable employment.

What will be regarded as reasonable in this regard remains to be seen. There is a case for providing for a derogation from these employment criteria in high risk sectors such as music promotion. If no derogation is available, the evaluation process is likely to entail the submission of a business plan to the certifying authority, demonstrating the artist's potential to create the requisite level of employment.

The cost per job in terms of tax foregone by the Exchequer may be a factor in evaluating this plan. However, it would be impractical to expect that employment targets will always be achieved, given their dependency on the popular success of a particular artist or artists.

Hopefully the certification process will strike the right balance between the sustainable employment potential of a project and its potential to generate foreign earnings for the economy.

The success or otherwise of the extension of the Business Expansion Scheme, to the music industry will largely depend on what happens between now and the publication of the Finance Bill towards the end of March. The initiative is welcome.

However, it is vitally important that the legislation introduced to effect the proposed extension and the guidelines under which it will operate, can practically support the promotion of new artists. Properly implemented, it will serve as a foundation stone upon which to plot the road to stardom for a new generation of Irish talent.